monopolies

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  • Created by: nikoamiko
  • Created on: 16-04-15 12:43

Monopolies

Monopoly is a market structure dominated by one large firm who exerts a market power and has 25% or more of market share. In transport markets, a network rail is an example of monopoly, as the costs of rolling stock act as a significant barrier to enter and due to these high set up and sunk costs , the firms outside the market can not enter.

In theory, a monopoly is the most inefficent market structure out of oligopoly and monopolistic competition, this is because, a monopoly produces faces no competition, and therefore, it has no incentive to keep its prices low and increase the output produced. Therefore, a monopolist will do a Profit Maximization objective and produce where MC=MR, (where extra unit produced adds more revenue tha cost) this is inefficient point on monopoly equilibrium graph, because it creates a welfare loss to society, which is represented by a triangular area ABC. The price is charged where P is greater than MC, and  the  quantity supplied  is limited at  PMQ1. In network rail market, the demand for the transport is price inelastic, and this enables the poducers to charge  the  rail passengers higher fare prices, furthermore, train operating services are controlled by the government and competition commision to ensure  that the trains run to their normal timetables. There is x-inefficency in the monopoly market, as there is a big difference between actual costs and potential costs, this is because, a monopoly producer has no incetive…

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